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HMRC internal manual

Business Income Manual

Specific receipts: reverse premiums: tax treatment of the payer

The tax consequences for a person who pays a reverse premium are unaffected by the legislation treating the payment as revenue in the hands of the recipient. The tax treatment continues to be determined by general principles.

If the payer is a builder or developer who pays the reverse premium in the course of a trade, it is likely to be an allowable deduction in computing trade profits. It is part of the cost of realising trading stock.

If the payer is a landlord, the premium will not be an allowable deduction in computing rental business income. The let property for which the reverse premium is paid will be a fixed capital asset of the letting business. The purpose of paying the reverse premium will be to enhance the value of that asset by securing an income stream in respect of it. Thus, it will be a payment on capital account.